Fundamentally, PMCS is sound. Do not get me wrong...I believe if you are going to be in the semiconductor business, networking chips is perhaps the most insulated from the Asia downturn. However, that does not mean it is totally resilient. For example, PMCS has enjoyed so many excellent earnings quarters because it has sticked to the high-margin businesses and exited those with falling margins. PMCS has grown accustomed to 65-70% gross margin on its semi business. Basic rules of economics say that such a premium cannot last, and price pressure will start to affect even the high margin ATM market PMCS is in. This will negatively affect PMCS's earnings as volume drops and prices are cut. Overall, and I may be against the trend here, but I believe that we are entering a phase of significant weakness that occurred before the October drop. And I also believe there is a general denial of the fact that virtually every economy in the world is in the shitter except the US, but it is preposterous to think that this can last. Other companies I believe will see a deterioration of share price in the near future are IBM and NVLS. For reference, I encourage you to check the valuations of several bellweather tech and semi companies, like AMAT, KLAC, INTC, and note that current share prices are below those of when the Asia crisis first hit. We are talking 52-week lows here. Be careful...the FED did not raise rates because it is counting on Asia slowly the US economy. They certainly are confident about this, and I wouldn't bet against it. And, like it or not, the companies that will be hurt the most by this are those that derive revenues from Asia: semiconductor companies. Furthermore, looking at the charts for PMCS, there appears to be larger downside potential than upside. There is significant resistance to 50 (+5) and some support at 36 (-9) although it is stronger at 30 (-15). I simply do not see many buyers entering at these high prices given overall market weakness and insecurity.
IMHO,
Tom |
